Guest blogger: Nick Levine, Business Development Manager at Crowdcube
Why has Crowdfunding become popular?
Over the last few years western economies have suffered the most prolonged and severe recession since the Second World War. As a result, SME businesses are finding it harder than ever before to borrow and raise money.
During this same period, changes in technology have meant that individuals are now able to transact with one another on a peer to peer basis with relatively low transaction costs.
The culmination of these two factors has driven the rise of alternative finance, notably crowdfunding.
Businesses are now able to take on debt or sell equity, with relative ease and speed compared to more traditional financing methods.
With a record 500,000 new businesses formed in the UK last year, access to early stage capital is timely. Seed capital (typically �50,000-�150,000) is arguably the hardest finance an entrepreneur will ever raise, as it is too early stage and too small an amount for venture capitalists, private equity companies and institutional investors.
The main benefits of equity crowdfunding
Raising money is just the starting point for equity crowdfunding.
Social Proofing Your Business
One of the additional benefits is social proofing your business. As crowdfunding is a very transparent medium, running a campaign is a fantastic way to get feedback (both positive and negative), from people with relevant industry experience to whom access is not ordinarily available. A recent example of this is SilkFred, an online fashion business who have recently raised funds through equity crowdfunding. Their investors include a professional fashion photographer and someone who has taken four fashion brands to IPO level. These investors engaged with the entrepreneur when doing their due diligence and liked what they saw and heard; their interaction via the Q & A on the site and subsequent backing, social proofed the business.
PR and Marketing
Equity crowdfunding, is a buzzy area at the moment and rightly so. The UK is the leading player in the market globally, so it goes without saying that a successful campaign is a great way to pick up both national and international news coverage. Solarmass, a company which produces solar panels that look like regular roof tiles, received coverage in a number of publications, including Tech City News, after running a successful equity crowdfunding campaign. The company reached their �100,000 target in just ten days and went on to raise �120,000 days.
At the start of their campaign they were one of many companies in a crowded market, and they are now one of the most recognised in their sector nationally.
Equity crowdfunding differs to rewards based crowdfunding, in that people who own shares in the business have a long term interest in the success and sustainability of your business. This means that investors are likely to become evangelists for your business, helping to spread the gospel far and wide. In addition, recent research from Forbes magazine has revealed that businesses which equity crowdfund increase their sales 341% in the first quarter subsequent to the end of a successful campaign.
Crowdcube launched in February 2011 and we are the leading equity crowdfunding company in the world. We have so far raised over �17.5m for 96 UK businesses, seeing a 560% rise in growth in 2013 and have a memberbase of 59,000 investors.
Both company examples above used Crowdcube to successfully equity crowdfund.